COLLEGE PLANNING*
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A higher education opens the doors to lifelong personal and professional relationships. And itís a worthy investment. Although the numbers may seem frightening, the situation isnít hopeless. If your children are young, time is on your side. If not, donít despair. Itís never too late to begin. Use the worksheet below to calculate how much youíll need to save or contact us for a one-on-one session. (269) 273-3690.

  Education Savings Calculator
  Types of Education
  Coverdell Education Savings Accounts (CESAs)
  529 Plans
  Uniform Gifts to Minors Act (UGMAs)
  Uniform Transfers to Minors Account (UTMAs)
  Life Insurance 
  Additional Funding Sources
  Other Considerations





Education Savings Calculator1

1. Your childís age:  
2. Years to save (18 minus childís age):  
3. Costs per year (tuition, fees, room, board, books, supplies, transportation, and personal expenses.)2 Use your own figure or a 4-year average of $19,180 for a public college or $30,210 for a private college:  
4. Itís anticipated that costs will rise about 5 percent annually in coming years. The table below uses multipliers based on 5 percent. Use the multiplier for your own time horizon:  
5. 5. Multiply step 3 by step 4 for the future total cost of higher education:  
6. Use the correct multiplier for the rate of return you anticipate on investments you have: (The example uses the multiplier for 8 percent; see chart).  
7. For the amount you will need to set aside each year, divide the results of step 5 by the multiplier from step 6:  
8. For a monthly amount, divide the annual amount by 12:  

 Example:

1. Age 4     
2. 14 years to save            
3. Public: $19,180
4. (5%) = 8.5338   
5. $163,678.28
6. (8%) = 34.1842
7. Annually: $4,788.13
8. Monthly: $399.01

1. Root and Mortensen 2 Source: The College Board 3 Petersonís Undergraduate Database 2004

For help with this savings calculator please contact:

(269) 273-3690 
Jared.Hoffmaster@PrimeVest.com
 

Years left to start higher education Multiplier
for
increase
in cost
of higher
education
Multiplier for anticipated rate of  
return on investment(s)


                5%               6%               8%               10%

0              4.3101         5.4875         5.5707         5.6561

1              4.5256         5.2927         5.3760         5.4609

2              4.7519         6.5426         6.7140         6.8927

3              4.9895         7.8662         8.1594         8.4689

4              5.2690         9.2689         9.7210         10.2041

5              5.5009         10.7554       11.4078       12.1142

6              5.7760         12.3306       13.2297       14.2170

7              6.0648         14.0003       15.1982       16.4317

8              6.3680         15.7699       17.3244       19.0803

9              6.6864         17.6451       19.6214       21.8858

10            7.0207         19.6323       22.1024       24.9745

11            7.3718         21.7389       24.7828       28.3743

12            7.7404         23.9713       27.6779       32.1183

13            8.1274         26.3371       30.8057       36.2399

14            8.5338         28.8446       34.1842       40.7778

15            8.9604         31.5021       37.8337       45.7737

16            9.4085         34.3188       41.7660       51.2740

17            9.8789         37.3037       46.0348       57.3305

18            10.3728       40.4676       50.6350       63.9989



Types of Education Investments

Now that youíve determined how much youíll need to save, you need to decide which types of investments will benefit you the most. The answer often depends on your childís age.

  • Newborn to 10 Years: Consider investments that have
    the potential to grow in value, such as common stocks
    or stock mutual funds.
  • 10 to 14 Years: Consider a balanced investment
    portfolio that consists of growth stocks or stock mutual
    funds, and limited maturity bonds or bond funds.
  • 14 Years and Older: Consider investments that
    provide income and liquidity, such as income-oriented
    mutual funds, limited maturity bonds, and bond funds.

For help with this savings calculator please contact: 

(269) 273-3690 
Jared.Hoffmaster@ceterais.com



 

Coverdell Education Savings Accounts (CESAs)*

Coverdell Education Savings Accounts (CESAs), formerly known as Education IRAs, allow you to make annual non-deductible contributions designated to an investment account. The contribution limit is $2,000 annually. If any balance remains in a CESA after all expenses are paid, the account can be transferred to another eligible family member. If an account is not transferred prior to the recipient reaching age 30, the remaining funds are deemed distributed with income taxes and a 10% penalty due on the earnings.

Advantages:

  • Money grows tax-deferred*.
  • Withdrawals for up to the childís amount of qualified education expenses for that year are exempt from federal taxes*.
  • Rollovers to other eligible family members under age of 30 are permitted.

Considerations:

  • Beneficiary must withdraw the money before age 30 unless a special needs beneficiary or assets transferred to another family member.
  • Limits on contributions by upper-income tax payers*.
  • May affect financial aid eligibility. 

For questions or to get started with a CESA contact:

(269) 273-3690 
Jared.Hoffmaster@ceterais.com


 

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529 Plans*

529 plans are qualified tuition programs maintained by states or eligible educational institutions that offer investors professionally managed, tax-advantaged portfolios to help meet rising college expenses through investment management firms. These plans are designed to help families save for future college costs.

There are two general types of 529 plans: prepaid tuition plans and savings plans. The states offering prepaid tuition contracts covering in-state tuition will allow you to transfer the value of your contract to private and out-of-state schools, although you may not get full value depending on the particular state. If you decide to use a savings plan, the full value of your account can be used at any accredited college
or university in the country, along with some foreign institutions. The savings plans are managed by some of the best mutual fund companies and investment management firms in the country.
 

Advantages:

  • Tax-deferred* accumulation and tax-free withdrawals* (when solely used for qualified education expenses).
  • No income restrictions on eligibility of donor gifting money to 529 plan.
  • Estate tax benefits: 529 plan value removed from donorís estate.
  • Donor can gift forward $65,000 in the first year or $13,000 annually per donee (for 2011, indexed thereafter) without gift tax consequences*.
  • Larger contribution amounts (up to $250,000).
  • Donor is in control of account.
  • In-state residents may qualify for state income tax deductions* and exemptions (state tax laws may vary).


Considerations:

  • Prepaid tuition plan is designed only to match rate of tuition inflation of in-state public universities, whereas a savings plan is flexible depending on investment selections and returns.
  • The number of eligible colleges may be restricted in some states with the prepaid tuition plan; the savings plan has no restrictions.
  • Non-qualified distributions subject to income tax* and a 10% penalty on the earnings.

For questions or to get started with a 529 plan contact:

(269) 273-3690 
Jared.Hoffmaster@ceterais.com



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The Uniform Gifts to Minors Act and Uniform Transfers to Minors Account

The Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Account (UTMA) let you gift cash and other assets to minor children for taxadvantages.

Advantages:

  • Custodian manages account when child is a minor.
  • Investment income typically is taxed to child*.
  • No costly legal fees or reporting requirements.

Considerations:

  • Transfer of assets is irrevocable.
  • Child gains control of account when reaching majority age (usually 18 or 21).
  • Assets may be considered when applying for financial aid.

For questions or to get started contact:

(269) 273-3690 
Jared.Hoffmaster@ceterais.com



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Life Insurance*

Cash value life insurance is another alternative for college planning. Variable Universal Life insurance (VUL)4 provides tax-deferred growth with the bonus of permanent life insurance protection. A primary purpose of life insurance is to provide for dependents at the death of a primary wage earner paying for everyday needs, the home mortgage, or education of family members.
 

Advantages:

  • Owner controls money and chooses from multiple investment options.
  • No pre-591/2 restrictions on withdrawals of principal.
  • Tax-deferred accumulation with tax-free withdrawals*.
  • Self-completing in the event of death.
  • Accumulation value generally not considered an asset when applying for financial aid to meet college expenses.


Considerations:

  • Typically 10-year minimum time horizon for withdrawals.
  • Minimum funding requirements.
  • Must be insurable.
  • Underwriting requirements must be met.

For questions or to get started contact:

 (269) 273-3690 
Jared.Hoffmaster@ceterais.com
 

Additional Funding Sources

  • Government Series EE and I Savings Bonds
  • Home Equity Loans
  • Retirement Funds
  • Scholarships
  • Zero Coupon Bonds
  • Grants
  • Federal Loans
  • Roth and Traditional IRAs
  • Tax-efficient Mutual Funds*
  • Real Estate
  • Financial Aid

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Other Considerations

  • HOPE and Lifetime Learning Credits
  • Student Loan Interest Deductions
  • Tax credits and deductions*


For More Information
Financing a higher education for someone important to you is a challenge you donít have to face alone.
 

Contact us today:

(269) 273-3690 
Jared.Hoffmaster@ceterais.com

*Consult your tax advisor.